The Oakmark Fund, specifically its Class I Shares, reported a mixed performance in the third quarter of 2025. While the fund modestly lagged the S&P 500 Index during this recent period, it has maintained a strong track record of outperforming its benchmark since its inception. This quarter's gains were primarily fueled by robust contributions from the financial and energy sectors, showcasing the fund's strategic sector allocations. Conversely, the healthcare and consumer staples sectors acted as the largest drag on performance. Despite a deliberate underweighting in the information technology sector, which has been a strong performer in the broader market, the fund's management remains optimistic, identifying numerous attractive opportunities in high-quality, undervalued enterprises across a diverse range of industries. This highlights a persistent commitment to value investing principles and a focus on long-term growth potential.
Oakmark Fund Navigates Market Dynamics in Q3 2025 with Strategic Investments and Future Outlook
In the third quarter of 2025, the Oakmark Fund's Class I Shares experienced a slight underperformance compared to the broader S&P 500 Index. However, a review of its performance since its inception reveals a consistent outperformance against this benchmark, highlighting a strong long-term investment strategy. Key performance drivers for the quarter included significant contributions from the financials and energy sectors. In contrast, the healthcare and consumer staples sectors acted as primary detractors. The fund's strategic underweighting in the information technology sector, despite its recent market strength, reflects a disciplined approach to finding intrinsic value.
Highlighting specific portfolio activity, Alphabet Class A shares emerged as the top contributor, bolstered by a favorable antitrust ruling in the Google Search case and impressive second-quarter earnings that surpassed expectations. Alphabet's ongoing innovations in search and the accelerating growth of its Cloud division, particularly from AI workloads, position it for continued upside potential, with managers viewing it as undervalued on a sum-of-the-parts basis. Conversely, Centene was the top detractor, following a significant downward revision of its 2025 earnings per share guidance due to cost pressures in its Medicaid and Marketplace businesses. Despite this setback, the fund believes these headwinds are temporary, anticipating a strong earnings recovery in the coming years.
New strategic acquisitions this quarter included Targa Resources and Union Pacific. Targa Resources, a prominent midstream natural gas and NGL company, benefits from significant cost advantages and high barriers to entry due to its control of 90% of the fractionation capacity in the Mont Belvieu hub. Its revenue stability is underscored by multi-year, fee-based arrangements, offering protection against market fluctuations. Even with recent concerns over Permian oil production, the fund sees Targa as well-positioned for growth and undervalued relative to its peers. Union Pacific, the largest and most profitable Class I railroad in the U.S., was acquired at a discount to its estimated intrinsic value. Led by CEO Jim Vena, the company has undergone substantial operational improvements. Despite macro challenges and merger uncertainties, the long-term outlook for Union Pacific is positive, with potential additional upside if the proposed merger is approved.
Finalized sales during the quarter included BlackRock, Centene, and Kenvue. The fund's management, comprising seasoned portfolio managers such as William C. Nygren, Michael A. Nicolas, and Robert F. Bierig, continues to employ an intensive, fundamental research process, seeking companies trading at a significant discount to their inherent value. Their investment philosophy prioritizes businesses with strong profit potential and management teams that act as owners, aligning with a long-term ownership perspective.
The Oakmark Fund's recent performance report highlights the dynamic nature of active investment management. Despite a quarterly dip relative to the S&P 500, the fund's historical outperformance and current strategic moves underscore the importance of a long-term, value-oriented approach. This approach encourages investors to look beyond short-term market fluctuations and focus on fundamental business strength. The decisions to invest in companies like Targa Resources and Union Pacific, despite prevailing uncertainties, reflect a belief in intrinsic value and management quality. It also serves as a reminder that patience and thorough research are critical in identifying opportunities that might be overlooked by the broader market. This report reinforces the idea that true investment success is often built on a disciplined philosophy, not just on following trends.